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RFAs should become AFAs

Regulators want to see more registered financial advisers becoming authorised financial advisers to plug the advice gap on KiwiSaver.

Thursday, May 23rd 2013, 6:00AM 12 Comments

by Susan Edmunds

Code committee chairman, and lawyer, David Ireland told the Professional Advisers Association conference in Auckland last week that he hoped to see a flight from registered to authorised status. “The hope is yes there will be movement…We do need more AFAs able to deliver advice. It’s a matter of how we encourage that to occur.”

He said it was not about making advice hard to deliver but about the accessibility of advice. “One of our concerns is the accessibility of advice.. there are only 2000 AFAs out there and two million Kiwis in KiwiSaver… we’ll be looking at options for how we help the industry to plug some of those gaps.”

Only a small portion of people would be able to get personalised KiwiSaver advice under current conditions.

Ireland said there was a full review of the FAA looming but a concern for the FMA was how to increase the number of AFAs without diminishing the quality of the advice pool. “The regulator is very motivated to be transparent and move things along.”

Grosvenor chief executive David Beattie said the future of financial advice was in retirement funding. “The obvious trend is our contributions will go up,  they need to go up at an increasing rate to get anywhere near where Australia is.”

Contributions would at least double, he said. “The opportunity in terms of the pool, the size of money, is going to be enormous.”

He said it was easy to build a commoditised life-stages default plan but advisers could add value. “You can step in and say ‘the best strategies for you as an individual are not based on your age as the single most important determining factor. Let me sit down and work out what you need’. But that’s why it’s going to be a threat,  it’s going to be commoditised, the fees for that are going to be really low.”

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Comments from our readers

On 23 May 2013 at 8:16 am Collin said:
If there is a so-called 'advice gap' in KiwiSaver it has been created by advisers themselves. Advisers who are not or have not been active in KiwSaver have simply been negligent and ignored the best interests of clients. If those same clients have taken the lead, got information and maybe some assistance along the way and joined KiwiSaver, how is that an 'advice-gap'. I think it is more of an 'adviser-gap'. Since 2007 there have been absolutely no impediments to advisers particpating in KiwiSaver.
On 23 May 2013 at 10:28 am Keith Walter said:
A good 1st step to getting more RFAs to become AFAs would be to review the current syllabus to make it RELEVANT and MEANINGFUL.
This would mean going back to first principles to determine the level of knowledge & competency appropriate to the advice being given and, only then, constructing courses and examinations to deliver the required outcomes.
However, if the only concern is the lack of advisers qualified to give appropriate advice on KiwiSaver then I would have thought the sensible approach would be to create a special qualification for that alone.
I realise this would mean yet another classification for these people and there will be an outcry of "too many classification; the average punter will get confused."
But let's not fool ourselves that the 'average punter' knows (dare I say cares)what the difference is between an AFA and a Registered Financial Adviser - until we explain it to them.
Better to require advisers to state specifically the areas they are qualified to give advice in (and have clearly defined and easily understood terms for these) than the current AFA and Registered Financial Adviser.
If we did that, the public would know instantly what areas their adviser was able to give advice in and, perhaps more importantly, what areas they aren't qualified in.
Lastly, such a classification regime may even encourage advisers to become more qualified as their specific competencies will be instantly recognised.
On 23 May 2013 at 10:53 am Broker said:
Let me ask the regulators - 1/ would you spend 2-3 hours of your time travelling to see some one on the other side of town to possibly earn $10 a year in income? I actually value my time. 2/ It's not an easy 'sale' as trust has been completely demolished in the investment advice area with the finance companies falling over and Mark Bryers and the like...knock knock where were the regulators when all that was happening? 3/ The Government itself is giving mixed messages with it's asset sale program and auto KiwiSaver sign up via employers to default KiwiSaver funds - not exactly promoting personalised investment advice are they? Quite happy as an RFA's an idea -perhaps half of the $1000 'kickstart' should have to go an investment adviser to cover a consultation? Might help fill the gap?
On 23 May 2013 at 11:55 am Amused said:
Can someone please point out to David Ireland and the Code Committee that not every RFA wants to be able to give their clients personalised KiwiSaver advice. Most mortgage and insurance brokers (the vast majority of whom are RFA) are busy enough thank you helping clients in our chosen area of expertise. We are quite content to stick to our knitting and leave investment advice to those who have always specialised in that arena. I’ve been in lending for 20 years now and just as I wouldn’t expect an investment adviser to be ideally qualified to give me advice on a mortgage nor would I suddenly claim myself as been an “expert” on investment products by becoming an AFA. Experience cannot be beaten nor should it be underestimated.

The regulators need to fully appreciate (or understand perhaps?) that there are two distinct areas of the financial services industry:

1)Lending and insurance

Most mortgage brokers or risk advisers have no desire to expand into KiwiSaver. The rigmarole of being an authorised financial adviser just so they can advise on KiwiSaver to the odd client would actually disadvantage their core business activity which they have built their businesses on. If there is currently a shortage of advisers able to give consumers personalised KiwiSaver advice then perhaps as Keith wisely says above the current Act needs addressing.
On 23 May 2013 at 12:30 pm w k said:
@keith walter, re: "better to require advisers to state ..." I have suggested in writing before and how it can easily be done, unfortunately, it's in the bin somewhere.

@broker, re: "would you spend 2-3 hrs ..." the regulators are fixed income earners not entrepreneurs, they only need to increase fees to cover and increase their salaries according to CPI, so they do not understand opportunity costs.

I strongly suggest that it would be best for david Ireland and his likes to an adviser for a couple of months, do the exams (pay for it out of their pockets), deal with the compliance (including the costs, of course, and out of their pockets), and at the same time do some selling to get commission to cover their biz overheads, mortgages and feed their family, then start talking.

On 23 May 2013 at 12:37 pm Mac said:
Amused, you stated "...there are two distinct areas of the financial services industry:
1)Lending and insurance
Not too long there were three distinct areas: mortgage broking, insurance, and investment. Now there are two because of commercial necessity. Maybe because of the massive KiwiSaver opportunity looming there will only be one category due to financial necessity?
On 23 May 2013 at 1:39 pm Brent Sheather said:
Hi Colin

Your post at 8.16 intrigues me. I’ve never given any advice on KiwiSaver because most of my clients are retired, I’m more than busy enough but I thought that all the lowest cost and thus best options for Mum and Dad didn’t pay any commission or fees. But from what you’re saying “advisers who haven’t been active in KiwiSaver have ignored the best interests of clients”. So good on you for doing this but can you detail how you manage to recommend the best products and make a living. I presume you must charge your clients a fee. If so and given that it works it’s probably a model that could be copied.

Previously I thought the only advisers that made money out of KiwiSaver were those who recommended peripheral products from the dodgy providers that pay commission. As I say I know nothing about reality in this marketplace but I’m sure readers and David Ireland would like to know more about what is happening on the ground. I have always thought that in order to get people properly advised either the Government or Mum and Dad need to pay advisers for advice rather than having a situation where some do and some don’t. The suggestion that some of the $1,000 kick start should go to advisers is not a bad one but there should be some rules around this i.e. that only advice on a certain number of low cost KiwiSaver providers get the Government cash. This would serve two purposes… Mum and Dad would hopefully get sensible feedback on asset allocation and it would be worthwhile advisers recommending good solutions.

On 24 May 2013 at 10:32 am Mark said:
Why would an RFA take the time and money to become an AFA to give advice on KiwiSaver - including the risks they take on if they fail to give good advice - and only earn $10/year from each individual client?

Until individuals are prepared to pay for the advice they receive, or KiwiSaver includes an acceptable level of remuneration, there is no incentive to include investment advice for an RFA.
On 24 May 2013 at 11:14 am Andy said:
As I posted on a similar topic: "There are still less than 2000 AFAs and this is insufficient to service New Zealand investors, he (Ireland) says."

Has Ireland actually stopped to analyse why this might be? The costs involved, and the risks to the (AFA) adviser, then the challenge in seeking reimbursement from clients MIGHT JUST BE factors. Add to that the issue of commission and possible removal further down the track. I admit that some clients are quite happy to pay fees - but they would only be the top echelon of investors - those who value advice and knowledge. Unfortunately the remaining 80% of Kiwi's want their advice for free, even for the retirement funds (KiwiSaver included). How do you propose paying an AFA sufficient to service the remaining free-loading or ignorant investors? How do we educate them and still earn a living?

Regarding RFAs giving advice on KiwiSaver plans - I admit I am on the fence. But when banks can churn business without justification, I fear for the public, and wonder about the future of good advice to the majority of NZers.

So if Mr Ireland wants to get more AFAs to fill the gap, he needs to make it worthwhile for people to take on the extra risk, study, and workload (involved in keeping ahead of the 3000 bits of legislation). From my experience to date, the legislation has revolved around arse covering and best practice, rather than ways to get GOOD advice to the clients. Instead of focusing on ways to protect ourselves if something goes wrong – why don’t we look at better ways of getting better information to our clients. After all: that’s what they are paying us for.

On 24 May 2013 at 11:19 am 6ftndr said:
Mark - this is why you should charge a fee for your services. If the clients trust you and think you warrant being paid for the advice - they will pay it.

However if they think that you are only in it for yourself and whatever money you can earn from them, then they will probably tell you to eff off.
On 24 May 2013 at 12:21 pm Proud RFA said:
Good comment Amused. As a tertiary qualified RFA with 40 years in the Fire & General Insurance profession I am not interested in being an AFA or doing KiwiSaver. There are enough risks, to me, dealing in Fire & General Insurance especially in the area that I specialise in.
The AFA education regime was clearly designed for investment advisers. The failure to recognise any non life based qualification was a disgrace.
On 24 May 2013 at 3:42 pm brent sheather said:
The AFA education scheme may not have recognized any non life based qualification but to say it was designed for investment advisers is to insult investment advisers ! I did virtually all the courses and they were not much use for investment advisers either. They were a disgrace and an embarrassment and a waste of time and money.I could go on...

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